Vol 5 (2008) - Issue 3

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A Perfect Murder?

The perfect murder is one where there is no evidence or apparent motive leading to the culprit; and, ideally, one where it is not even certain if there is a murder victim. Most readers, the author suggests, would recognise that two fond and familiar characters, have all but disappeared of late. Those are Trading Receivership and Trading Administration, which we will call Tradrec and Tradmin. It is now time to consider if they are really dead, and if so expose the likely suspects.

Investigations have been hampered by difficulties in establishing any precise time of death. On the other hand, this is a case in which motive can be attributed to a number of parties. To solve it, we need to analyse the victims and review the circumstances of their apparent demise.

Though separated in age by many years, Tradrec and Tradmin became so similar to look at that only a handful of discerning lawyers could distinguish between them. But their parentages were quite different, Tradrec born of contract, Tradmin of statute. The identity of the father of Tradrec is beyond the author’s recollection, but Tradmin is commonly accepted to have been the off-spring of one Cork.

From their beginnings, both were entrusted to the care of the ‘IP fraternity’. Both developed in adolescence, resolving uncertainties in their characters and, at maturity, achieving great things. Both became adept at jettisoning activities impairing a viable business, managing workforces critical to that viability, preserving the confidence of suppliers and customers and thus maximising the values of assets utilised in those businesses. Much of the credit for these achievements lay with the IP fraternity and the lawyers advising them.

It is profoundly ironic that the huge strides made by Tradrec and Tradmin in passing the great challenges brought about during the UK recession of the early 1990s put in train a series of events potentially culminating in their murder.

The primary beneficiary of the successes of Tradrec and Tradmin was the secured creditor, a position occupied invariably by a bank. As a consequence of such a deep recession, the demand for, and therefore the values of, secured assets fell. So the banks, on the one hand reluctant to lend to would-be purchasers, on the other hand failed to make full recoveries. Banks came to regard the professional fees involved in operating Tradrec and Tradmin to have been incurred at their expense.

An additional concern stemmed from the fact that at the beginning of any Tradrec or Tradmin, there was often a need for cash. In those days, most assets, even receivables, were considered to be subject to fixed charges, dis-encouraging any third party contemplating lending since repayment could come only from the proceeds of assets subject to floating charges. Consequentially, Tradrec and Tradmin depended upon cash provided by pre-existing secured creditors – from the banks’ perspective, additional risk coupled with uncertainty of outcome. So the banks started to think that Tradrec and Tradmin were not their friends and began to shun them wherever possible.

Other forces were at work undermining Tradrec and Tradmin. Laws had been introduced intended to protect employees, by compelling those who purchased businesses to inherit the workforce, including those who had been dismissed during a Tradrec or Tradmin with a view to achieving a business sale. The result was to deflate the prices which purchasers were willing to pay. On top of that, suppliers had come to notice and exploit a weakness. By refusing to provide goods and services critically required, they could jeopardise the asset values and achieve a kind of super-priority. Secured creditors would be forced to advance money to pay these ‘ransom’ demands, or risk the loss of going concern asset sale values. In truth, this weakness was a function of the company’s business dynamics, which perhaps the secured creditor should have recognised earlier, but the fingers of blame were pointed at Tradrec and Tradmin. Furthermore, in a minority of cases, a Tradrec or a Tradmin had gone horribly wrong. An over-optimistic view of asset values had been taken and, in the end, there had not been enough realised to pay the expenses. Ripples of disquiet amongst suppliers led to increased taking of ransom positions, compounding the problems for secured creditors.

Company management was never a great fan of Tradrec or Tradmin, losing control entirely to the IP fraternity. Even line management was often removed and replaced by IP staff, ostensibly to cut overheads but partly to do with the IP firm’s business models.